Does Judicial Efficiency Lower the Cost of Credit?

36 Pages Posted: 20 Apr 2016

See all articles by Luc Laeven

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Giovanni Majnoni

World Bank

Date Written: October 2003

Abstract

Laeven and Majnoni investigate the effect of judicial efficiency on banks' lending spreads for a large cross section of countries. They measure bank interest rate spreads for 106 countries at an aggregate level, and for 32 countries at the level of individual banks. The authors find that - after controlling for a number of other country characteristics - judicial efficiency, in addition to inflation, is the main driver of interest rate spreads across countries. This suggests that in addition to improving the overall macroeconomic climate in a country, judicial reforms, through a better enforcement of legal contracts, are critical to lowering the cost of financial intermediation for households and firms.

This paper - a product of the Financial Sector Operations and Policy Department - is part of a larger effort in the department to study the determinants of access to finance and the cost of credit.

Suggested Citation

Laeven, Luc A. and Majnoni, Giovanni, Does Judicial Efficiency Lower the Cost of Credit? (October 2003). World Bank Policy Research Working Paper No. 3159. Available at SSRN: https://ssrn.com/abstract=636578

Luc A. Laeven (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Giovanni Majnoni

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-458-7542 (Phone)
202-522-2106 (Fax)

HOME PAGE: http://www.worldbank.org/research/interest/intrstweb.htm

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